Conversions, converted into common:

EXHIBIT B. DESCRIPTION OF FORMATION OF LOUISIANA STEAM GENERATING CORPORATION AND THE CHARACTER OF ITS OPERATIONS

Louisiana Steam Products, Inc. (which name was later changed to Louisiana Steam Generating Corporation) was organized in 1929 by Engineers Public Service Co., to provide the steam requirements of a large oil refinery at Baton Rouge and, in connection with the supply of this steam, to generate and supply electricity to the refinery and to two constituent companies of Engineers Public Service Co. It was a unique undertaking, and the factors leading to its development are reviewed in the following paragraphs.

Standard Oil Co. of Louisiana, a subsidiary of Standard Oil Co. of New Jersey, has at Baton Rouge an oil-refining plant with a capacity of approximately 100,000 barrels of crude oil per day. The initial refining unit was erected about 1910 and the plant has been constantly expanded and improved until at the present time it is one of the largest and most up-to-date refineries for the complete refining of crude oil in the world.

The oil refining process requires large quantities of steam and a considerable amount of electric energy and in the summer of 1929 the Baton Rouge refinery consumed steam at the rate of about 31⁄2 billion pounds per year. Electric energy requirements of the refinery amounted to approximately 60 million kilowatthours per year. Both of these requirements had been furnished by the refinery itself, the steam being generated in 76 small boilers of conventional design in addition to a number of waste heat boilers. Electric energy was supplied by 6 small steam turbo generator units having a total capacity of 15,000 kilowatts.

In the latter part of 1929 the refinery was faced with the necessity of providing for substantially increased steam and electric requirements brought about by contemplated additions to the refinery plant which would bring the steam consumption up to about 6 billion pounds per year.

The electrical transmission system of Baton Rouge Electric Co., serving Baton Rouge, La., and adjacent territory, had recently been interconnected with that of Gulf States Utilities Co., which serves an extended area in the eastern portion of Texas, centering around Beaumont, and the southern section of Louisiana. The generating capacity at Baton Rouge amounted to 6,500 kilowatts and the station site had been developed to about its economic limit. Growth of electrical load west of Beaumont, Tex., and in the Louisiana territory served by Gulf States Utilities Co., as well as that in Baton Rouge, definitely indicated that increased capacity would be required by the combined systems, which would have to be provided either by the installation of additional generating capacity near the eastern end of the system or by additional transmission line capacity east of Beaumont.

The needs for additional capacity for both the refinery and the utilities were, therefore, practically simultaneous, and it was apparent that if joint facilities could be provided which would satisfactorily provide the additional requirements of both industries, each would benefit by the resulting economies with a minimum outlay of capital.

An investigation indicated that it was entirely feasible to construct a noncondensing station, whereby steam for process use by the oil refinery could be generated at high pressure (625 pounds) and passed through turbo generators, thereby reducing the pressure to that suitable for refining processes (135 pounds) and at the same time generating sufficient quantities of electrical energy to meet adequately the requirements of both the utility systems and the refinery. Accordingly negotiations were entered into with the Standard Oil Co. of Louisiana which resulted in the organization, under the laws of Louisiana, of Louisiana Steam Products, Inc. (which name was later changed to Louisiana Steam Generating Corporation) to construct and operate a central station of suitable size and design, and contracts were entered into by Louisiana Steam Products, Inc., with Standard Oil Co. of Louisiana and with Baton Rouge Electric Co., to provide the steam and electric energy required by the Baton Rouge refinery of the Standard Oil Co. of Louisiana, and through the Baton Rouge Electric Co. contract, to provide the requirements of the latter's system for electric energy and provide important additional electric energy requirements of the eastern portion of the Gulf State Utilities system.

In addition to providing facilities for both the utilities and oil refinery, Louisiana Steam Generating Corporation makes another important contribution to the mutual benefit of the parties concerned. In the oil-refining processes large quantities of residuals are obtained, which, while being combustible, are not saleable in any form and the accumulation of these residuals presented a major

problem to the refinery. Extensive analysis and research was carried on with the result that equipment was provided in the Steam Generating Corporation plant for the economical utilization of these residuals as fuel. This, in effect, provided a market for these refinery residuals and provision was incorporated in the contract whereby the oil company sells to the Steam Generating Corporation a substantial portion of the latter's fuel requirements in the form of residuals at a comparatively low cost.

The economic feasibility of the entire project obviously centered around the ability of the plant to supply both steam and electric energy to the oil refinery at a price which would afford a saving under that for which the refinery could furnish its own requirements after giving consideration to operating and maintenance costs and carrying charges on the necessary investment, and, at the same time, to have the remaining cost sufficiently low to permit the sale of excess electric energy to the utility systems at prices which would compare favorably with their own over-all costs of production.

Studies showed that such requirements could be met and the resultant contracts are equitable to all parties concerned. This plant has been operating continuously since May 1930 to the mutual advantage of both the refinery and the utilities.

As a result of the economies made possible by Louisiana Steam Generating Corporation, the oil refinery at Baton Rouge has maintained a consistently high level of operation, with the result that the territory adjacent to Baton Rouge has benefited appreciably by the sustained employment and pay roll of the major industry in the territory.

Louisiana Steam Generating Corporation itself is not a public utility. Its operations are confined strictly to its own property, delivery of both steam and electricity being made at the property line. It is of great service, however, both to the utilities and to the refinery.

The average return on the investment of Engineers Public Service Co. in this development since its inception has been approximately 5.7 percent. The earnings statement and balance sheet of Louisiana Steam Generating Corporation are included in the Annual Report of Engineers Public Service Co., pages 38-39 of exhibit I.

EXHIBIT C. COPY OF LETTER DATED APRIL 3, 1933, TO VIRGINIA ELECTRIC & POWER CO., TOGETHER WITH EXHIBITS, SERVICES RENDERED DURING THE YEAR 1932 BY THE SUPERVISORY ORGANIZATION OF THE ENGINEERS PUBLIC SERVICE CO., INC.

Mr. J. G. HOLTZCLAW,

President Virginia Electric & Power Co.,

Richmond, Va.

APRIL 3, 1933.

DEAR JACK: You will recall that I was telling you about a letter with supporting exhibits which we prepared for McLaughlin for the purpose of conveying to him our views concerning the advantages that the operating subsidiaries of Engineers Public Service Co. derive from the arrangement they have with Engineers Public Service Co., Inc., by which the latter company performs useful and necessary services for these operating companies.

The authorities of the State of Washington are inquiring into the publicutility situation in that State, as is the case in Virginia. Since, naturaly, this investigation will include a survey of the relationships between the operating company and its affiliates, we felt that a full and frank brief as to our views on his subject might be helpful at this time in assisting you to make a full disclosure of the relationship of your company with the holding company, which owns practically all of the common stock of the Virginia Co. We are, therefore, sending you this letter with attached supporting exhibits for this purpose.

There have recently come to the attention of the public several rather flagrant examples wherein holding companies have used their subsidiaries solely to enhance the value of the holding company's securities without in return furnishing to the operating subsidiaries anything of equal or greater value. It goes without saying that such a practice is unsound and untenable and that the American people will not permit it to continue.

In the very nature of things, newspaper and representatives and protectors of the public display more zeal in bringing the bad practices of holding companies to the attention of the public than they do in pointing out their benefactions. Murders and thieveries are displayed in the press more prominently than the

daily good deeds of the Boy Scouts and others. However, holding companies can and should furnish various benefits to their subsidiaries and some actually do. If the public understood the real usefulness of holding companies and were convinced that some holding companies were not improperly using their subsidiaries but were benefiting them instead, they would not only cease to persecute such holding companies but would actually encourage their proper development.

Recognizing the above facts, we of the Engineers Public Service Co., with the advice and counsel of the subsidiary organizations, have endeavored to lead in the perfection of a holding-company arrangement that would furnish the greatest possible benefits to the operating subsidiaries without in any way exploiting them. This we hope we have done; however, when and as experience indicates any way in which the benefits to the subsidiaries can be increased, we propose to include such new ideas in our scheme. Under our arrangement the only hope of reward to the owners of the property comes from the expectation that a satisfied public, having confidence in the fairness with which they are treated, will not object to the owners, who are rendering them an efficient and economical service, earning a fair return either on the property used and useful in the public service or on their prudent investment in the property, whichever is finally determined to be the fair and equitable basis of value for computing such return. The Engineers Public Service Co. has recognized that every business, to be successful and respected, must be operated strictly in accordance with some welldefined philosophy. The extent of the success and respect such a business might expect to achieve will depend upon the soundness and fairness of the philosophy under which it is operated. The owners and officers of Engineers Public Service Co. and the officers of its operating subsidiaries have developed such a philosophy, the principal points of which have been embodied in a code of ethics, copy of which we are attaching as exhibit 1.

The following beliefs will become apparent on studying this code of ethics: 1. That the operating companies cannot be most successful without a sincere public confidence.

2. That sincere public confidence can never be hoped for unless it is really deserved from a reasonable public point of view.

3. That local public confidence requires the greatest possible degree of local autonomy in management.

4. That the ethics, efficiency, and public behavior of the operating company and all of its affiliates must be above suspicion and that it must be so conducted as to avoid even the "appearance of evil.”

5. That operating companies must be so economically operated as to furnish the best and fullest service at the lowest reasonable cost to the user.

6. That the benefits accruing from good management and efficient operation must be equitably distributed between the public, the employee, and the owner. With your assistance we have, to the best of our ability, attempted to determine carefully those things, and only those, necessary to proper public-utility operation, which can be most efficiently, expeditiously and economically performed by some central organization. Engineers Public Service Co., Inc., of New York, is set up for the purpose of furnishing these services at cost to the operating companies.

Engineers Public Service Co., Inc., a New York corporation, has been set up by Engineers Public Service Co., the Delaware corporation, 91 percent of the common stock of which latter corporation is owned by Stone & Webster, Inc., to assist its operating subsidiaries. Engineers Public Service Co., Inc., the New York corporation, is wholly owned by the operating subsidiaries to which it renders service. Its net expenses are entirely prorated each month among the owning subsidiaries, to each in proportion to its annual gross earnings. It is, therefore, absolutely a nonprofit organization.

In addition to providing economies in operation, the purpose of the Engineers Public Service Co., Inc., of New York, is to assist in carrying out the tenets of the attached code of ethics. To the degree that it assists in effecting economies and in making these tenets operative, its work may be considered useful and successful. If these purposes are not achieved, the organization is useless and should be disbanded.

Powerful evidence that these policies have been successfully applied and that economies in operation have been effected in the Virginia Co. is furnished by the award to this company in 1928 of the Coffin transportation medal and in 1931 of the similar medal offered in the light and power field. Each year the Charles A. Coffin Foundation makes these two awards, one to the transportation com